McKinney v. Taff ( 1998 )

IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
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No. 97-40486
Summary Calendar
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In The Matter of: RICHARD A. TAFF;
VICTORIA TAFF,
Debtors.
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ELWOOD McKINNEY,
Appellant,
versus
RICHARD A. TAFF, also known as
Richard A. Taff, doing business
as National Agency of North America;
VICTORIA TAFF, also known as Vickie Taff,
Appellees.
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Appeal from the United States District Court for the
Southern District of Texas
(M-96-CV-23)
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January 7, 1998
Before JOLLY, BENAVIDES, and PARKER, Circuit Judges.
PER CURIAM:*
The only question before us in this appeal is whether the 1982
agreement between Taff and McKinney was an actual assignment of
commissions or a disguised security arrangement. The bankruptcy
*
Pursuant to 5TH CIR. R. 47.5, the court has determined that
this opinion should not be published and is not precedent except
under the limited circumstances set forth in 5TH CIR. R. 47.5.4.
and district courts concluded that it was a security arrangement,
and we agree.
Under Southern Rock, Inc. v. B & B Auto Supply, 711 F.2d 683,
685 (5th Cir. 1983), whether an agreement constitutes a security
arrangement is determined with reference to state law. Under the
Texas law applicable to this case, the test for creation of a
secured interest is whether “‘the transaction [was] intended to
have effect as security.’” Id. (quoting Tex. Bus. & Comm. Code.
§ 9.102 comment 1). To determine whether a particular agreement
was so intended, Texas courts look to “the substance of the
documents in light of the circumstances of the case.” John Bezdek
Insurance Associates, Inc. v. American Indemnity Company, 834
S.W.2d 401, 403 (Tex. App. San Antonio 1992) (citing In re Miller,
545 F.2d 916, 918 (5th Cir. 1977)). In this case, contrary to
other areas of Texas contract law, the “substance of the documents
controls over the words used therein.” Id.
Although the bankruptcy court did not reveal the test it
employed, it was nonetheless correct to conclude that the 1982
agreement was a disguised security arrangement. There was direct
testimony from McKinney himself that the purported assignment was
intended to secure the guarantee of a loan, and that the assignment
was not aggressively collected on until after the loan had gone
into default. There was further testimony that the commissions
purportedly assigned absolutely were actually pledged as security
elsewhere. In addition, several of the clauses of the agreement
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itself were more typical of a security arrangement than an
assignment. Because this evidence of intent to provide security
vastly outweighed the mere wording of the document, the agreement
was a security arrangement.
Because the 1982 agreement was clearly a disguised security
arrangement under the governing Texas law, the bankruptcy court was
also correct to apply 11 U.S.C. § 522(a) to prevent it from
extending post petition.
For these reasons, we AFFIRM the district court.
A F F I R M E D.
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